HSBC Holdings plc 1H18 Results Fixed Income Investor Presentation Date: 6 August 2018
Contents 1 HSBC Key Credit Messages 2 2 HSBC Group Strategy and 1H18 Performance 4 3 HSBC’s Capital Structure and Debt Issuance 17 4 Establishing the UK Ring-Fenced Bank 22 5 Appendix 25 1
HSBC Key Credit Messages 2
HSBC Key Credit Messages Diversified businesses, capital strength, robust funding and liquidity As at 1H18 8 bps 1.4 % Conservative approach to risk management ECL as a % of gross customer Stage 3 loans as a % of advances (annualised) gross customer advances Other Europe GB&M RBWM Asia Diversified revenue streams by business, geography and type NII Fee MENA Adj. CMB GPB LAM NAM Revenue 14.2 % 5.4 % $ 7.2 bn Strong capital position and capital generation ability Profit attributable to CET1 ratio Leverage ratio ordinary shareholders 71.8 % 158 % $ 540 bn Robust funding and liquidity metrics Advances / Liquidity High Quality Deposits ratio Coverage Ratio Liquid Assets A A2 AA- Strong credit ratings HSBC Holdings HSBC Holdings HSBC Holdings S&P rating Moody’s rating Fitch rating 3
HSBC Group Strategy and 1H18 Performance 4
Our strategic priorities and financial targets Strategic priorities Financial targets Accelerate growth from our Asian franchise 1 Build on strength in Hong Kong Invest in PRD, ASEAN, and Wealth in Asia (incl. Insurance and Asset Management) RoTE 1 >11% by 2020 Be the leading bank to support drivers of global Deliver growth investment: China-led Belt and Road Initiative and the from areas of transition to a low carbon economy strength Complete establishment of UK ring-fenced bank, 2 increase mortgage market share, grow commercial customer base, and improve customer service Positive adjusted Gain market share and deliver growth from our Costs 3 jaws international network Turn around our US business Turnaround of 4 low-return Improve capital efficiency ; redeploy capital into higher businesses 5 return businesses Create capacity for increasing investments in growth and 6 technology through efficiency gains Sustain dividends Build a bank for Enhance customer centricity and customer service through long-term 7 the future that through investments in technology Capital earnings capacity puts the customer Invest in digital capabilities to deliver improved customer and of the businesses at the centre service dividend Share buy-backs Expand the reach of HSBC, including partnerships subject to Safeguard our customers and deliver industry-leading regulatory approval financial crime standards Empower our 8 Simplify the organisation and invest in future skills people 5
Key messages 2Q18 key messages 1 st half 2018 Reported PBT (1H17: $10.2bn) 1 Reported PBT of $6.0bn, 13% higher than 2Q17; $6.1bn adjusted PBT, in line with 2Q17 $10.7bn 5% Adjusted PBT (1H17: $12.4bn) Total adjusted revenue increased $0.2bn to $13.7bn vs. 2Q17; good business momentum with $12.1bn 2 2% revenue up $0.9bn or 7% in all four global businesses; Corporate Centre down $0.6bn RoE 2 (1H17: 8.8%) 8.7% Adjusted operating costs of $8.1bn were $0.6bn or 7% higher than 2Q17, reflecting increased 0.1ppt 3 investment in growth and technology; in line with 1Q18 and guidance Reported RoTE 2 (1H17: 9.9%) 9.7% 0.2ppt $26bn or 3% lending growth compared with 1Q18 and $43bn or 5% compared with 1.1.18 (on a 4 constant currency basis) A/D ratio (1H17: 70.1%) 71.8% 1.7ppt 5 Strong capital base with a common equity tier 1 ratio of 14.2% CET1 ratio 3 (1H17: 14.7%) 14.2% 0.5ppt 6
Financial overview Key financial metrics 1H17 1H18 Key financial metrics Return on average ordinary shareholders’ equity 2 8.8% 8.7% Return on average tangible equity 2 9.9% 9.7% Jaws (adjusted) 4 0.5% (5.6)% Dividends per ordinary share in respect of the period $0.20 $0.20 Earnings per share 5 $0.35 $0.36 Common equity tier 1 ratio 3 14.7% 14.2% Leverage ratio 6 5.7% 5.4% Advances to deposits ratio 70.1% 71.8% Net asset value per ordinary share (NAV) $8.30 $8.10 Tangible net asset value per ordinary share (TNAV) $7.26 $7.00 Reported results, $m Adjusted results, $m 2Q18 ∆ 2Q17 ∆ % 1H18 ∆ 1H17 ∆ % 2Q18 ∆ 2Q17 ∆ % 1H18 ∆ 1H17 ∆ % Revenue 13,577 404 3% 27,287 1,121 4% Revenue 13,685 233 2% 27,535 578 2% LICs / ECL (237) 190 44% (407) 256 (39)% LICs / ECL (237) 180 43% (407) 250 38% Costs (8,166) (51) (1)% (17,549) (1,106) (7)% Costs (8,125) (554) (16,370) (1,175) (7)% (8)% Associates 783 132 1,381 198 Associates 783 90 1,381 122 20% 17% 13% 10% PBT 5,957 675 10,712 469 13% 5% PBT 6,106 (51) (1)% 12,139 (225) (2)% 7
Financial overview Reconciliation of Reported to Adjusted PBT Half year Discrete quarter 2Q17 2Q18 ∆ 2Q17 1H17 1H18 ∆ 1H17 Reported profit before tax 5,282 5,957 675 10,243 10,712 469 Includes: Currency translation (118) - 118 (289) - 289 Significant items: Fair value movements on financial instruments (239) (124) 115 (245) (152) 93 Revenue- Disposals, acquisitions and investment in new businesses 202 (30) (232) 358 (142) (500) related Other (1) 46 47 (7) 46 53 Settlements and provisions in connection with legal matters 322 56 (266) 322 (841) (1,163) Costs to achieve (CTA) (837) - 837 (1,670) - 1,670 UK customer redress (89) (7) 82 (299) (100) 199 Cost-related Costs of structural reform (97) (85) 12 (180) (211) (31) Other (18) (5) 13 (111) (27) 84 Adjusted profit before tax 6,157 6,106 (51) 12,364 12,139 (225) The remainder of the presentation, unless otherwise stated, is presented on an adjusted basis 8
Financial overview 1H18 Profit before tax 1H18 ∆ 1H17 Adjusted revenue by global business, $m adverse favourable +8% 2% Revenue 578 $27,535m 11,065 10,283 +1% 38% LICs / ECL 250 $(407)m +12% 8,265 8,192 7,439 Operating (8)% (1,175) +6% $(16,370)m 6,622 >(100)% expenses 986 929 874 Share of profits in 10% 122 associates and $1,381m joint ventures (163) RBWM CMB GB&M GPB Corporate Centre 1H17 1H18 (2)% (225) $12,139m Profit before tax Adjusted PBT by global business, $m 1H17 1H18 ∆ 1H17 ∆ % Adjusted PBT by geography, $m 1H17 1H18 ∆ 1H17 ∆ % RBWM 3,397 3,630 233 7% Europe 2,100 464 (1,636) (78)% CMB 3,564 4,111 547 15% Asia 8,223 9,360 1,137 14% GB&M 3,543 3,568 25 1% Middle East and North Africa 816 834 18 2% GPB 144 190 46 32% North America 944 1,104 160 17% Corporate Centre 1,716 640 (1,076) (63)% Latin America 281 377 96 34% Group 12,364 12,139 (225) Group 12,364 12,139 (225) (2)% (2)% 9
Financial overview 2Q18 Profit before tax 2Q18 ∆ 2Q17 Adjusted revenue by global business, $m adverse favourable +6% 2% Revenue 233 $13,685m 5,396 5,070 +2% 43% LICs / ECL 180 $(237)m +14% 4,117 4,052 3,740 Operating (7)% (554) 3,274 $(8,125)m +2% >(100)% expenses 617 447 439 Share of profits in 13% 90 associates and $783m joint ventures -15 RBWM CMB GB&M GPB Corporate Centre 2Q17 2Q18 (1)% (51) $6,106m Profit before tax Adjusted PBT by global business, $m 2Q17 2Q18 ∆ 2Q17 ∆ % Adjusted PBT by geography, $m 2Q17 2Q18 ∆ 2Q17 ∆ % RBWM 1,581 1,724 143 9% Europe 1,317 241 (1,076) (82)% CMB 1,680 2,000 320 19% Asia 3,839 4,605 766 20% GB&M 1,739 1,855 116 7% Middle East and North Africa 421 397 (24) (6)% GPB 75 77 2 3% North America 421 666 245 58% Corporate Centre 1,082 450 (632) (58)% Latin America 159 197 38 24% Group 6,157 6,106 (51) Group 6,157 6,106 (51) (1)% (1)% 10
Financial overview Revenue performance Revenue performance, $m 7 +7% Global 13,760 13,700 businesses 12,909 12,835 12,855 477 447 12,324 430 439 438 420 4,074 4,117 4,066 3,913 4,052 3,399 GPB GB&M 3,635 3,740 3,352 3,292 3,274 3,467 CMB RBWM 5,574 5,396 5,121 5,070 5,152 5,038 1Q17 2Q17 3Q17 4Q17 1Q18 2Q18 Corporate Centre 617 92 352 191 (15) (167) 1Q17 2Q17 3Q17 4Q17 1Q18 2Q18 Group 13,261 13,452 13,046 12,416 13,593 13,685 revenue 11
Loan impairment charges and expected credit losses Credit outlook remains stable Loan impairment charges and expected credit losses, $m Analysis by stage as at 30 Jun 2018 Stage 3 as IAS 39 IFRS 9 Total 8 $bn Stage 1 Stage 2 Stage 3 a % of Total 2Q17 1Q18 2Q18 30 Jun 2018 Loans and advances to customers 898.9 68.8 14.2 982.2 1.4% 417 Allowance for ECL 1.3 2.0 5.3 8.7 237 161 31 Mar 2018 By global business 296 Loans and advances to customers 906.3 68.1 15.4 990.5 1.6% RBWM 254 240 CMB Allowance for ECL 1.3 2.2 5.7 9.4 119 119 GB&M 63 GPB 20 Corporate Expected credit losses of $237m in 2Q18 related mainly to charges in RBWM, (3) (1) (2) (19) Centre (66) notably in Mexico and the UK, against our unsecured lending portfolios (86) (119) North America ECLs benefited from a release in the oil and gas sector By region, $m Europe (14) 60 125 The credit environment remains stable - of which UK (16) 56 99 Asia 282 32 84 - of which Hong Kong 231 14 6 MENA 65 3 99 North America (32) (47) (187) Latin America 116 113 116 Total 417 161 237 12
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